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Audit Program #3 - Valuation or Allocation 5 Obtain a copy...

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Apple Blossom Cologne Company Audit Program for Inventory AP - 3 W/P Ref Initials Existence/Occurrence 1. Prior to the date of inventory taking, review the client's inventory plans, noting dates, times, locations, personnel to be used, and procedures (S-8). 2. At year-end, during the client's inventory taking (W-1): (a) Observe the inventory counting and recording procedures performed by client. Look for strengths and weaknesses in internal control. (b) Make and record test counts of selected inventory items. Be alert for obsolete or damaged goods. (c)To determine proper cutoff of inventory and purchases, record data from last receiving report used. (d) Prepare a memorandum concerning your observation of the physical inventory. Completeness 3. Trace cutoff data recorded at observation into client records. Rights and Obligations 4. Inquire concerning consigned inventories.
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Unformatted text preview: Valuation or Allocation 5. Obtain a copy of client's final priced inventory and (W-1): (a) Recalculate extensions and footings. (b) Trace totals to trial balance. (c) Trace test counts to client's final priced inventory. (d) Investigate differences between physical counts and perpetual records (S-9; W-1). 6. Obtain a copy of client's final priced inventory and: a) Test prices used to cost inventory by reference to purchase invoices or other source data. Consider treatment of discounts and freight. Use the FIFO cost flow method. b) Using invoices near year-end check current replacement costs to see if inventory prices exceed replacement costs. If so, make lower-of-cost-or-market adjustment. Presentation and Disclosure 7. Determine that the basis of inventory valuation is properly disclosed in the financial statements....
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